Sensex, Nifty charts (Oct 09, 2020): 5 weeks long down trends reversed by FII buying

FIIs were net sellers of equity on Fri. Oct 9, but were net buyers during the first four trading days of the week. Their total net buying was worth Rs 33.7 Billion. DIIs were net buyers of equity on Thu. and Fri. (Oct 8 and 9), but were net sellers during the first three trading days. Their total net selling was worth Rs 23.89 Billion.

IHS Markit's India Services PMI rose to 49.8 in Sep '20 from 41.8 in Aug '20, but remained below the 50 mark - indicating contraction. The Composite (Mfg. + Serv.) PMI expanded for the first time in 6 months, rising from 46 in Aug '20 to 54.6 in Sep '20.

After its bi-monthly MPC meeting from Oct 7-9, '20 RBI decided to keep the repo and reverse repo rates unchanged at 4% and 3.35% respectively. RBI also forecast a GDP contraction of 9.5% for FY 2020-21.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex shows how a sudden gush of FII money has blown away technical resistances. Expectation of a second round of stimulus in the US may have turned FIIs into bulls.

The 5 weeks long down trend (marked by blue down trend line) has been reversed and strong resistance from the 335 points downward 'gap' formed on Feb 28 has been overcome. Bears had no place to hide. Their short-covering helped the week's sharp 1800 points rally. 

Daily technical indicators are looking bullish and overbought. MACD is rising above its signal line in bullish zone. ROC has climbed to the edge of its overbought zone. RSI is rising towards its overbought zone. Slow stochastic is well inside its overbought zone, and can trigger a pullback towards the 335 points downward 'gap' of Feb 28.

Q2 (Jul-Sep '20) corporate results have started hitting the market, with TCS releasing a decent set of numbers and announcing a share buyback. Wipro also announced a share buyback. 

Dividends exceeding Rs 5000 received by shareholders now attract a 7.5-10% tax. (Earlier, companies had to pay a dividend distribution tax.) Promoters holding large chunks of stock may prefer to opt for buybacks - which reduce equity capital and thereby enhance EPS.

If you are thinking about tendering shares to a company offering a buyback - think again. You may offer 500 shares, but the company may accept only 170. Also, buybacks attract capital gains tax - so you might as well sell in the market.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty closed above the 11900 level for the first time in more than 7 months - gaining nearly 500 points (4.3%) on a weekly closing basis.

The bearish pattern of 'lower tops, lower bottoms' formed during the past 5 weeks have been negated - thanks to FII buying. All three weekly EMAs are rising, and Nifty is trading above them in a long-term bull market.

Weekly technical indicators are in bullish zones and showing some upward momentum. MACD is rising above its signal line in overbought zone. RSI is rising above its 50% level. Slow stochastic is moving up towards its overbought zone after dropping down from it. Some more index upside is possible. 

Nifty's TTM P/E has moved up to 34.71, its highest level ever and well above its long-term average deep inside its overbought zone. The breadth indicator NSE TRIN (not shown) has dropped sharply from its oversold zone - and can limit near-term index upside.
 
Bottomline? Sensex and Nifty charts have reversed 5 weeks long down trends on the back of FII buying. Bulls are back in control. However, caution is advised as the broader market didn't participate during the week's rally. Check Q2 (Jul-Sep '20) corporate results before committing fresh money to individual stocks.

Sensex, Nifty charts (May 22, 2020): bears remain in control

FIIs were net sellers of equity on all five trading days. Their total net selling was worth Rs 69.2 Billion. DIIs were net sellers of equity on Mon. and Fri. (May 18 and 22), but net buyers on the other three trading days. Their total net buying was worth Rs 39.38 Billion, as per provisional figures.

RBI preponed the MPC meeting to reduce repo rate by 40 bps (to 4%) in a bid to inject more liquidity into the monetary system, after the market was disappointed by PM's Rs 20 Trillion 'stimulus' announcement. Rising food inflation and looming recession can lead to stagflation. 

India's crude oil imports in Apr '20 fell 12.4% YoY to 17.28 million tonnes, thanks to low demand during the corona virus lockdown. Oil product imports dropped 6.5% to 3.35 million tonnes. However, refined products exports rose 37% YoY to 6.04 million tonnes.
 
BSE Sensex index chart pattern

The daily bar chart pattern of Sensex fell sharply on Mon. May 18 and slipped below the psychological 30000 level intra-day. It rallied for the next three days, but failed to overcome resistance from the sliding 20 day EMA. The index closed 425 points (1.4%) lower for the week.

Sensex had touched an intermediate top of 33887 on Apr 30, retracing 49.6% of its fall from the Jan 20 top (42274) to the Mar 24 low (25639). By stopping just short of the 50% Fibonacci retracement level, and forming an 'island reversal' pattern thereafter, the bear market rally got terminated. 
 
All three EMAs are falling, and the index is trading below them. The bear market has completed three months, and there are still no signs of bottom formation. Corporate performance during the first half of the financial year will not be good. The second half will depend on how well the corona virus gets contained.

Daily technical indicators are giving mixed signals. MACD has slipped below its signal line in neutral zone. RSI has hovering below its 50% level. Slow stochastic has risen sharply from its oversold zone and crossed above its 50% level. Some near-term index upside is a possibility.

RIL's huge rights issue at a substantial premium is open for subscription till June 9th. Don't expect the index to fall much till then. 

Many analysts are already calling a bottom at the Mar '20 low. Previous bear markets have never ended at the first low. Small investors should be prepared for a long haul. If you have spare cash, invest in small tranches.
 
NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty gave a thumbs down to FM's explanations about the so-called Rs 20 Trillion economic stimulus, and closed below its three weekly EMAs for the 11th straight week. The index lost about 98 points (1.1%) on a weekly closing basis.

The sharp bear market rally from the Mar '20 low of 7511 to the Apr 30th intermediate top of 9889 retraced 48.3% of the fall from the Jan '20 top. Nifty fell just short of the 50% Fibonacci retracement level - terminating the rally. It has since closed lower for three consecutive weeks, but managed to stay above the psychological 9000 level.

The 20 week EMA crossed below the 200 week EMA some time back. All three weekly EMAs are falling, which is a sign of a long-term bear market. The 'death cross' of the 50 week EMA below the 200 week EMA - which will technically confirm a long-term bear market - is awaited but appears imminent.

Weekly technical indicators are in bearish zones. MACD is moving sideways below its falling signal line inside oversold zone. RSI is sliding down in bearish zone. Slow stochastic has dropped sharply below its 50% level. Some more index downside is likely. 

Nifty's TTM P/E has remained flat at 20.97 but above its long-term average. The breadth indicator NSE TRIN (not shown) is rising inside neutral zone, hinting at near-term index correction or consolidation.

Bottomline? Sensex and Nifty charts are trading well below their respective 200 day and 200 week EMAs in bear markets. Positive corona virus cases continue to increase rapidly after easing of lockdown restrictions. India's economy is slipping into a recession. Protect your cash. Invest only in small quantities.

Sensex, Nifty charts (Mar 27, 2020): short covering rallies after touching 3 year lows

FIIs eased up on their huge selling spree. They were net sellers of equity on the first four trading days, but were net buyers on Fri. Mar 27. Their total net selling was worth Rs 71.65 Billion. DIIs were net sellers of equity on Thu. Mar 26, but were net buyers on the other four days. Their total net buying was worth Rs 43.08 Billion, as per provisional figures.

RBI resorted to out-of-turn interest rate cuts in a desperate bid to stop the economy from sliding further. The Repo rate was cut by 75 bps (0.75%) to 4.4%, which is lower than its previous low of 4.74% in Apr '09. 

The Reverse Repo was cut by 90 bps (0.9%) to 4%. The CRR was cut by 100 bps (1%) to 3%, which is likely to inject Rs 1.4 Trillion into the banking system. The move is expected to encourage banks to lend more.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex dropped to touch a new 3 year low of 25639 on Tue. Mar 24 before embarking on a sharp and swift short-covering rally. The index touched an intra-day high of 31126 on Fri. Mar 27, but formed a 'reversal day' bar (higher high, lower close).

Sensex is correcting the 11 year gain of some 34000 odd points from the Mar '09 low to the Jan '20 top. A 50% Fibonacci retracement is expected to drop the index to about 25100. Tuesday's low came within 500 points of this critical level. 

Daily technical indicators are in various stages of correcting oversold conditions. MACD turned up inside its oversold zone, but is facing resistance from its falling signal line. RSI has emerged from its oversold zone, but its upward momentum has stalled. Slow stochastic has risen sharply towards its overbought zone, hinting at an end to the short-covering rally.

Sensex corrected 16600 odd points from its Jan 20th top to its Mar 24th low. A 38.2% Fibonacci retracement of the fall can take the index to about 32000. The falling 20 day EMA is at 32200. The zone between 32000-32200 will be a tough resistance to cross for the index.

Small investors with no experience of the 2008 bear market would do well to refrain from chasing the rally. Sensex may fall further before a recovery in the stock market and the economy can happen. It will be a slow grind upward taking several months - may be even a year or two.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty bounced up sharply after touching a new 3 year low of 7511, but closed well below its 200 week EMA for the third straight week. The 20 week EMA crossed below its 50 week EMA for the first time in 3 years, and both weekly EMAs are falling. The 200 week EMA is beginning to turn down.

The long-term bullish structure of the chart has been wrecked by bears. FIIs have pulled out more than Rs 580 Billion from their equity holdings during the month, and are expected to continue with their exit strategy.

Weekly technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI is also falling inside its oversold zone. Slow stochastic has bounced up a bit from the edge of its oversold zone. Last week's short-covering rally should end soon. 

After touching a low of 17.15 on Mon. Mar 23, Nifty's TTM P/E moved up to 19.52, which remains above its long-term average. The breadth indicator NSE TRIN (not shown) dropped sharply into its neutral zone, where it has been treading water. Any further rally may be short-lived.

Bottomline? Sensex and Nifty charts have closed well below their respective 200 week EMAs for the third straight week - signalling the start of long-term bear markets. RBI's desperate interest rate cuts are too little too late to trigger economic growth that has been decimated by the virus lock-down. Small investors should continue with their SIPs, while waiting patiently for the correction to play out.

Sensex, Nifty charts (Oct 04, 2019): bears trying to regain control

In a holiday-shortened trading week, FIIs were net sellers of equity on all four days. Their total net selling was worth Rs 32.6 Billion. DIIs were net buyers of equity on all four days of the week. Their total net buying was worth Rs 34.8 Billion, as per provisional figures.

Nikkei India's Manufacturing PMI for Sep. '19 was stagnant at 51.4 - same as in Aug '19. (A figure above 50 indicates growth.) The Services PMI for Sep. '19 contracted to a 19 month low of 48.7, from 52.4 in Aug '19. The Composite PMI (Manufacturing + Services) dropped below the 50 mark for the first time since Feb '18.

Major automobile makers - including Maruti, M&M, Hyundai, Tata Motors, Honda, Toyota - reported double digit declines in domestic passenger vehicle sales in Sep. '19. Onset of the festive season has failed to reverse the ongoing slump in the auto industry. 

BSE Sensex index chart pattern

The 300 points upward 'gap' that formed on the daily bar chart pattern of Sensex on Mon. Sep 23 failed to support the index against a determined bear attack.

The index dropped steeply below the 'gap' on Tue. Oct 1, but found support from its 20 day EMA. The subsequent technical bounce faced resistance from the 'gap' and dropped to seek support from its 200 day EMA.

The (green) down trend line - drawn through the Jun '19 and Jul '19 tops - has dominated the Sensex chart for more than 4 months. RBI's 25 bps (0.25%) repo rate cut on Fri. Oct 4 failed to lift the market's mood, as the RBI Governor significantly reduced India's GDP growth estimate to 6.1%.

Daily technical indicators are looking bearish. MACD has formed a bearish 'rounding top' pattern, and is seeking support from its signal line in bullish zone. ROC (not shown) is falling towards its '0' line. RSI has dropped to its 50% level. Slow stochastic is falling towards its 50% level. Some more correction is likely.

Demonetisation and a hurriedly implemented GST has completely decimated the rural and unorganised sectors. Many small businesses have closed down. Larger businesses are more interested in cleaning up their balance sheets than making new investments.

Periodic economic booster doses by the Finance Minister have failed to revive bullish sentiments. Small investors can use the ongoing corrective phase to gradually add good large-cap stocks to their portfolios. Stay away from mid-cap, small-cap and PSU stocks.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty spent just a week above the (purple) up trend line before a bear onslaught forced a close below the trend line and the 20 week and 50 week EMAs.

The index continues to trade above its rising 200 week EMA in a long-term bull market. However, repeated breaches of a long-term up trend line should be treated with utmost caution.

Weekly technical indicators are looking neutral to bearish. MACD is below its signal line in bearish zone. ROC (not shown) is turning down after rising towards its neutral zone. RSI is trying to hang on to its 50% level. Slow stochastic is facing resistance from its 50% level. Some more index correction or consolidation is likely.

Nifty's TTM P/E has moved down to 25.75 - which remains well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has re-entered its oversold zone after falling sharply from it. Some more  near-term index correction is possible.

Bottomline? Sensex and Nifty charts are correcting after sharp upward breakouts. A cut in corporate taxes boosted bullish sentiment, but may not boost consumer demand. Both indices are hovering near support levels. Some more correction can't be ruled out.

Nifty chart: a midweek technical update (Aug 07, 2019)

FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 45.1 Billion. DIIs were net buyers of equity on all three trading days. Their total net buying was worth Rs 46.9 Billion, as per provisional figures.

IHS Markit India's Services PMI rose to a 1 year high of 53.8 in Jul '19 from 49.6 in Jun '19. A figure above 50 indicates expansion. The Composite PMI (Manufacturing + Services) rose to an 8 month high of 53.9 in Jul '19 from 50.8 in Jun '19.

RBI cut the repo rate by 35 bps (0.35%) to 5.4% today, and kept the door open for lowering rates further but flagged worries over economic growth prospects. It was the fourth straight cut in repo rate since Feb '19.

An interesting pattern according to Corrective Fan Principle is developing on the long-term weekly bar chart pattern of Nifty. Note the effects of the two trend lines - TL1 and TL2 - which are also called fan lines.

TL1 has been drawn through the lows touched in Feb '16 and Dec '16. This up trend line was breached in Oct '18. Nifty found support at 10000, and resumed its up move. Though the index touched a lifetime high of 12103 in Jun '19, it faced strong resistance from TL1.

TL2 has been drawn through the lows touched in Feb '16 and Oct '18. This second up trend line was breached last week. A third up trend line - TL3 - will be drawn once the ongoing correction finds an interim bottom.

The Fan Principle states that a downward breach of (a not-yet-drawn) TL3 will signal the beginning of a bear market. Such a situation may not arise if the index bounces up from the support zone between 9700 and 10000 and moves above TL2. (Nifty's 200 week EMA is within this support zone.)

Weekly technical indicators are looking bearish. MACD is falling rapidly below its signal line and is poised to enter bearish zone. RSI is falling below its 50% level. Slow stochastic has fallen inside its oversold zone. Expect some support in the zone between 10500 and 10800.

Nifty's TTM P/E has moved down to 26.74, but remains inside its overbought zone and much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is well inside its oversold zone and can limit near-term index down side.

Thanks partly to heavy selling by FIIs, the Rupee is touching 71 against the US Dollar. That may negate any positive effect of the 35 bps interest rate cut by RBI. When sentiment turns bearish, even good news attracts selling.

Nifty is trying to find support at the 10800 level. But the support may not hold for long.

Sensex, Nifty charts (Jun 07, 2019): pause after touching new highs

During a holiday-shortened trading week, FIIs were net buyers of equity on Mon. Jun 3, but net sellers on Tue., Thu. and Fri. (Jun 4, 6, and 7). Their total net buying exceeded Rs 7.2 Billion. DIIs were net buyers of equity on Fri. Jun 7, but net sellers on the other three days. Their total net selling was worth Rs 12.9 Billion, as per provisional figures.

Nikkei India's Manufacturing PMI increased to 52.7 in May '19 from 8-months low figure of 51.8 in Apr '19 - remaining above 50 (indicating growth) for the 22nd month in a row. 

However, Nikkei India's Services PMI slipped to 50.2 in May '19 from 51 in Apr '19 - its slowest growth in a year. The Composite PMI (Manufacturing + Services) was 51.7 in May '19 - the same as in Apr '19.

Passenger vehicle sales in India declined 21.6% YoY in May '19 due to high finance costs and economic uncertainty. Monthly sales for Maruti, Tata Motors, Honda, Toyota declined between 7.5% to 38%. M&M sales were marginally lower. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex gained more than 550 points on the back of heavy FII buying on Mon. Jun 3. The index rose further to touch a new high of 40312 on Jun 4, but formed a small 'reversal day' bar (higher high, lower close) due to profit-booking before the Eid holiday.

A 25 bps (0.25%) cut in repo and reverse repo rates by the RBI Governor on Thu. Jun 6 had already been 'discounted' by the market. Downward revision in the GDP growth rate led to profit booking by both FIIs and DIIs. Sensex lost 550 points.

The index bounced up after receiving support from its rising 20 day EMA on Fri. Jun 7, and formed a 'reversal day' bar (lower low, higher close) that brought some relief for bulls. The index is trading above its three EMAs in a bull market.

Daily technical indicators are in bullish zones after correcting overbought conditions. MACD is falling towards its rising signal line. ROC has crossed below its 10 day MA and dropped from its overbought zone. RSI and Slow stochastic have slipped down from their respective overbought zones. 

All four technical indicators showed negative divergences by failing to touch new highs with the index on Jun 4. Some more correction, and a part or complete filling of 'Gap 2' (formed on May 20) will improve the technical 'health' of the chart and enable Sensex to rise higher.

The NBFC debt mess continues, with DHFL being the latest defaulter after IL&FS. Remember Buffett's quote: "There's never just one cockroach in the kitchen." Several mutual funds, PSU and private banks have large outstanding loans to both NBFCs.

Expect the problem to get worse before it gets better. Banks are very wary of loaning money to NBFCs. Some of the smaller NBFCs will die. Others will be forced to borrow overseas just to survive - and will get into bigger trouble. 

Easy finance fuelling India's consumption growth is a thing of the past. Manufacturing growth has been weak for a while. For the next few quarters, earnings growth for Indian companies may not improve much. 

Don't get fooled by the high index level into thinking all is well. No need to sell off in a panic. Remain cautiously optimistic. Maintain trailing stop-losses. Avoid bargain-hunting when Sensex is near a lifetime high.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty touched a new high of 12103, but formed a 'reversal' bar (higher high, lower close) due to profit booking by FIIs and DIIs.

Three of the weekly technical indicators - MACD, RSI, Slow stochastic - are inside their respective overbought zones, but only Slow stochastic is showing some upward momentum. ROC is falling below its 10 week MA towards neutral zone. 

All four indicators showed negative divergences by failing to touch new highs with the index. Some more correction or consolidation is likely. 

After touching a high of 29.90 on Mon. Jun 3, Nifty's TTM P/E has moved down to 29.39, which is well above its long-term average in overbought zone. The breadth indicator NSE TRIN (not shown) has risen sharply to the edge of its oversold zone, hinting at some near-term index upside.

Bottomline? Sensex and Nifty charts are consolidating near lifetime highs, as bulls have not been able to shake off tenacious bears. A weakening economy and debt crisis of NBFCs will be detrimental to earnings growth of India Inc. Stay invested with trailing stop-losses. Avoid bargain hunting near lifetime highs.

Nifty chart: a midweek technical update (Aug 01, 2018)

FIIs were net buyers of equity on Tue. Jul 31, but net sellers on Mon. Jul 30 and today. Their total net buying was worth Rs 2.4 Billion. DIIs were net buyers of equity on Mon. and net sellers during the next two days. Their total net selling was worth Rs 8 Billion, as per provisional figures.

At the end of the three-day Monetary Policy Committee meeting, RBI hiked repo rate and reverse repo rate by 25 bps (0.25%) each today. The move was widely expected. Nifty closed just 10 points lower today after four straight days of rallying higher.

Revenue collection from GST rose to Rs 965 Billion in Jul '18 from Rs 956 Billion in Jun '18, thanks to increased compliance. However, it fell short of the Rs 1 Trillion per month target set by the government.

The daily bar chart pattern of Nifty touched a new high every day for five straight trading days. However, it closed lower today to form a small 'reversal day' bar (higher high, lower close).

All three EMAs are rising, and Nifty is trading above them, and above the (blue) up trend line, in a bull market. The index is in 'blue sky' territory with no known resistances.

Daily technical indicators are inside their respective overbought zones. MACD is rising above its signal line. ROC is above its 10 day MA, but has stopped rising. RSI and Slow stochastic are showing signs of correcting overbought conditions.

Nifty's TTM P/E has moved up to 28.14 - which is much higher than its long-term average and in overbought zone. The breadth indicator NSE TRIN (not shown) is oscillating just above its overbought zone. Expect some index consolidation or correction.

The index rally during the past 4 months has not been broad-based. A few large-cap stocks have propelled the index higher. Mid-cap and small-cap stocks have undergone profit booking, but their valuations still remain high.

If the index undergoes a correction - which is quite possible after a sharp rally - the mid-cap and small-cap stocks may correct even more. Any rally in mid-cap or small-cap stocks from here on can be used for partial profit booking.

Nifty chart: a midweek technical update (Jun 06, 2018)

FIIs were net buyers of equity on Mon. Jun 4 but net sellers during the next two trading days this week. Their total net buying was worth Rs 21.1 Billion. DIIs were net sellers of equity on Mon. Jun 4 but net buyers during the next two trading days. Their total net buying was worth Rs 4.7 Billion, as per provisional figures.

Rising rural demand and government's infrastructure push propped up sales of 2-wheelers and CVs in May '18. Tata Motors, Ashok Leyland, Bajaj Auto, Royal Enfield, Hero Moto, Maruti, Escorts, M&M showed double-digit sales growth.

RBI announced 25 bps (0.25%) increase in repo and reverse repo rates after a 3-day policy meeting today. Increase in interest rates occurred after 4.5 years. The stock market had anticipated the news, and rose on short covering and some value buying.

The daily bar chart pattern of Nifty is continuing to struggle in its efforts to cross above the downward 'gap' formed back in Feb 5.

On three consecutive trading days - May 31, Jun 1, Jun 4 - the index moved above the 'gap' intra-day, but failed to close above it. 

Nifty dropped to close below its 20 day EMA on Jun 4 and dropped further below its 50 day EMA intra-day on Jun 5, but pulled back towards the 'gap' today.

Daily technical indicators are looking neutral to bullish. MACD is entangled with its signal line, and moving sideways in bullish zone. RSI is just above its 50% level in neutral zone. Slow stochastic is trying to move up above its 50% level. Expect bears to resume selling at any time.

Nifty's TTM P/E is at 27.06 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is inside its overbought zone, and may limit near-term index up side.

The activity in the primary markets is set to pick up after a period of lull. More than half a dozen companies are looking to tap the market with their initial public offerings (IPOs) worth a cumulative Rs 200 Billion. That will divert cash from the secondary market.

Oil prices have come down a little, but may go up again post OPEC's meeting on Jun 22. The consolidation-cum-correction below the (purple) down trend line is likely to continue. A fall below the May 23 low of 10418 can lead to a test of support from the rising 200 day EMA.

Nifty chart: a midweek technical update (Apr 25, 2018)

FIIs were net sellers of equity on all three days of trading this week. Their total net selling was worth Rs 12.4 Billion. DIIs were net buyers of equity on all three days. Their total net buying was worth Rs 13.3 Billion, as per provisional figures.

The counter-trend Nifty rally from the Mar 23 low has retraced 50% of the fall from the Jan 29 top, and is facing a bit of resistance near the previous intra-day high of 10638 (touched on Feb 8).

According to Nomura, investment and consumption demand will drive India's YoY GDP growth to 7.8% during the first half of 2018. A Deutsche Bank report is expecting a 25 bps repo rate hike by RBI in Jun '18 or Aug '18 due to the inflationary effects of high oil prices. 

A month long counter-trend rally on the daily bar chart pattern of Nifty has managed to climb over a wall of worries and resistance levels before pausing at the 10638 level.

10638 was the intra-day high on Feb 8 - which was tested on Feb 27 before the sharp fall to the Mar 23 intra-day low of 9952. Nifty tested 10638 again on Mon. & Tue. (Apr 23 & 24) before slipping down today.

Note that today's correction breached the (purple) up trend line intra-day, but the index closed exactly on the trend line. Bulls may feel encouraged to breach 10638 on Thu. Apr 26 (which is F&O expiry day).

Daily technical indicators are in bullish zones, but not showing any upward momentum. MACD is above its signal line, but may be forming a bearish 'rounding top' pattern. RSI's gradual up move towards its overbought zone has been halted. Slow stochastic is sliding down inside its overbought zone.

All three EMAs are rising, and Nifty is trading above them in a bull market. However, bears will remain in control as long as the index trades below the 33 points downward 'gap' formed on Feb 5.

As per 'gap theory': even if the 'gap' is filled partly or completely, the down move should resume thereafter. With FIIs in selling mode, a breach of the (purple) up trend line is the more likely near-term outcome.  

Nifty's TTM P/E has moved up to 26.24 - which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is rising quickly in neutral zone, and can trigger some correction or consolidation.

Small investors should stay invested as per their asset allocation plans. With Q4 (Mar '18) results season getting into full swing, concentrate on individual stocks instead of worrying about index movements.

Nifty chart: a midweek technical update (Aug 02 ‘17)

For the month of Jul '17, FIIs were net buyers of equity (worth Rs 14.6 Billion) after three straight months of net selling. DIIs were also net buyers of equity (worth Rs 47.8 Billion) for the 4th month in a row. Nifty had its first ever monthly close above the 10000 level.

Passenger vehicle sales picked up in Jul '17 - thanks to price cuts after GST implementation. Maruti (22.4%), Honda (21.7%), M&M (21%), Ford (18.9%), Tata Motors (10.2%), Toyota (43%) showed double-digit sales growth over Jun '17. Two-wheeler and Commercial vehicles also had good growth in sales. 

In a widely expected move, RBI cut both the repo and reverse repo rates by 25 bps (0.25%) each during today's monetary policy meeting. Nifty corrected 33 points, as the interest rate cut had already been 'discounted' by the market.

The daily bar chart pattern of Nifty touched a new high of 10138 prior to RBI's policy announcement, but slipped 56 points to close at 10082 - forming a 'reversal day' bar (higher high, lower close) that may temporarily halt the bull rally.

The index is trading well above its three rising EMAs in a bull market. All three daily technical indicators are in their respective overbought zones. Slow stochastic is showing negative divergence by touching consecutive lower tops.

The index is almost 950 points above its 200 day EMA - a sign of extremely overbought condition. Nifty's TTM P/E is at 25.63 - considerably higher than its long-term average. The breadth indicator NSE TRIN (not shown) is trying to emerge from deep inside its overbought zone.

In the near term, large liquidity flows can keep an index overbought for long periods. Eventually, there will be a correction if earnings fail to catch up with index levels. Aug '17 may well turn out to be a month of correction or consolidation. 

Stay invested. Maintain SIPs. But no need to go on a buying spree just because the index is touching new highs. Partial profit booking may be a better idea.

Nifty chart: a midweek technical update (Feb 08 ‘17)

Contrary to market expectations, the RBI Governor kept repo and reverse repo rates unchanged at today's policy meeting. However, he has made it clear to banks that there was enough room to further reduce lending rates.

Cash withdrawal limits from savings accounts will be raised to Rs 50,000 per week effective Feb 20. From Mar 13 onwards, withdrawal limits will be removed completely. Nifty recovered intra-day losses to close flat.

FIIs turned net sellers of equity worth Rs 3.3 Billion during the first three days of trading this week. DIIs were net buyers of equity worth Rs 19 Billion, as per provisional figures.

The daily bar chart pattern of Nifty formed an upward 'gap' and scaled the 8800 level on Mon. Feb 6 - gaining more than 900 points from its Dec '16 low. It has since slipped down a little, and filled Monday's upward 'gap'.

Uncertainty about the RBI policy meeting had led to some profit booking. The index appears ready to move up to test its Sep '16 top 8969.

All three EMAs are rising, and the index is trading above them in a bull market. Technical indicators are looking overbought. Some more correction or consolidation is likely.

Nifty's TTM P/E is at 23.28, which is well above its long-term average. The breadth indicator NSE TRIN (not shown) remains deep inside its overbought zone.

Remember that an index can remain overbought for long periods. The strategy to make money in a bull market is to buy the dips - which bulls are clearly following.

Nifty is approaching its lifetime high - touched back in Mar '15. Expect serious profit booking around the psychological level of 9000.

(Note: There will be no blog posts for the next few days. Planning to take a short break from the market to commune with nature at a reserve forest with no electricity and no Internet.)

Nifty chart: a midweek technical update (Oct 05 '16)

FIIs were net buyers of equity worth Rs 6.20 Billion during the first three days of trading in Oct '16. DIIs were net buyers on Mon. but turned net sellers thereafter - their total net selling in equity was worth Rs 3.20 Billion, as per provisional figures.

India's manufacturing activity slipped in Sep '16 as per Nikkei's Manufacturing PMI of 52.1 against 52.6 in Aug '16. The Services PMI dropped to 52 in Sep '16 against 54.7 in Aug '16. However, both figures were above 50, indicating growth.

In the monetary policy review on Oct 4, RBI's new Governor surprisingly cut repo and reverse repo rates by 25 bps (0.25%), leaving CRR unchanged. The news should have boosted bullish sentiment in the market but didn't.

In last week's post on the daily bar chart pattern of Nifty, a 'descending triangle' pattern was drawn with the support level at 8690. Surgical strikes by the Indian Army on terrorist camps across the Line of Control in J&K triggered a sharp fall below 8690 on Thu. Sep 29.

The index found good support at 8550, and the subsequent rally took the index above its 20 day and 50 day EMAs to an intra-day high of 8807 today. But it faced strong resistance from the blue downtrend line and dropped to seek support from its 20 day EMA.

The 'descending triangle' pattern has been redrawn - with the support level now at 8550 and a downward target at 8130. Between 8550 and 8130 are 'Runaway Gaps 2&3' and the rising 200 day EMA at 8250.

A likely breach of 8550 should lead to a filling of 'Runaway Gap3' but Nifty may find support from 'Runaway Gap2'.

Nifty closed above its three EMAs in bull territory today. But the bearish reaction to an interest rate cut and the formation of a reversal pattern means that bears have the upper hand in the near term.

Daily technical indicators are giving conflicting signals. MACD is below its falling signal line and just managed to remain in positive zone. RSI is seeking support from its 50% level. Slow stochastic has moved above its 50% level. Expect the index to consolidate within the redrawn 'descending triangle' for a while.

Nifty's TTM P/E remains well above its long-term average at 23.43. The breadth indicator NSE TRIN (not shown) is in neutral zone and moving down towards its overbought zone.

An upward breach of the 8800 level with good volume support can negate the 'descending triangle' pattern. The probability of that happening in the near term is low.

The longer term structure of the chart is bullish. Any correction should be used as a buying opportunity.
  

Nifty chart: a midweek update (Jun 08 '16)

A  delayed monsoon and an upside risk to CPI inflation were the probable reasons why the RBI Governor kept repo, reverse repo and CRR rates unchanged during yesterday's policy announcement.

Though the move was widely anticipated by economists and market experts, bulls treated it as 'no news is good news' and went on a buying spree. 

In the three trading days this week, FIIs have been net buyers of equity worth Rs 1050 Crores. DIIs were net sellers of equity worth Rs 440 Crores.

Passenger vehicle sales in May '16 rose 7.6% over May '15, against a YoY growth of 11% in Apr '16. Maruti, Hyundai, M&M, Ford and Renault showed good growth. Honda, Tata Motors, Volkswagen and Nissan showed decline in sales.

The daily closing chart pattern of Nifty shows a 3-step recovery from a 15 months long down trend after formation of a 'double bottom' reversal pattern in Feb '16.

Step 1 was a sharp rally during Mar '16 that faced strong resistance from the 200 day EMA. Step 2 was a 8 weeks long sideways consolidation within a 'symmetrical triangle' pattern.

Step 3 was a sharp upward breakout from the triangle into bull territory, followed by the 'golden cross' of the 50 day EMA above the 200 day EMA that technically confirmed a return to a bull market.

A 'doubting Thomas' may point out that Nifty has gained only 18.7% from its Feb 25 '16 closing low of 6971, whereas a 20% gain is required to confirm a bull market.

Also, the index is yet to close above the long-term resistance level of 8275, though the level was breached intra-day two days in a row.

But these may appear to be nothing more than technical nitpicking. The chart is firmly in the grip of bulls. All three EMAs are rising and the index is trading above them.

Does it mean that the index will continue to rally without a correction? Obviously not. 

All three technical indicators are in their overbought zones following the sharp rally after the upward breakout from the triangle. The breadth indicator, NSE TRIN, has dropped back inside its overbought zone.

A correction or consolidation may be around the corner.

A chart can look overbought for long periods during a bull market. Should you now chase the rally? Prudence requires waiting for a dip to enter/add.

A few market analysts have mentioned substantially lower levels for Nifty due to high valuations and global uncertainties. You should ignore them.

But don't throw caution to the wind. Do not try to short the index. If you decide to buy, pay attention to your asset allocation plan and maintain a suitable stop-loss.